LETTER: Target health plans in curbing drug costs

New Jersey’s biopharmaceutical ecosphere is booming. It supports nearly 400,000 jobs and generates over $100 billion in economic activity each year. Our state’s medical research firms also conduct hundreds of in-state clinical trials on cutting-edge medicines for cancer, Alzheimer’s, rare diseases, and more.

One New Jersey company, for instance, is currently in late-stage clinical development for an antibiotic that could treat lung infections caused by NTM, a serious and rare condition that currently doesn’t have any available treatments.

Despite these benefits, a surprising number of state residents are unhappy with the pharmaceutical industry. Like three in four Americans, many Garden Staters cite drug-company profits as a “major factor” for the high cost of medications.

Patients are paying too much at the pharmacy counter. But pharmaceutical manufacturers in New Jersey have little to do with these out-of-pocket costs. Rather, pharmacy benefit managers -- the companies that administer drug plans for health insurers -- are securing big savings on drug prices but not always passing them along to patients at the pharmacy counter.

Americans are paying more for prescriptions than ever before. Patients with rare diseases -- one in 10 Americans -- often face the highest out-of-pocket costs.

Unfortunately, these higher out-of-pocket costs have prompted many patients to stop filling their prescriptions. For rare disease patients, this decision is particularly devastating -- there might not be another treatment for them to turn to.

For example, I am one of the 1.25 million Americans with type 1 diabetes and one of the 30,000 patients living with cystic fibrosis. Since 2002, patient out-of-pocket spending on insulin has more than tripled. In New Jersey, a patient with Obamacare currently pays a whopping $694.04 out of pocket for just one month’s supply of the insulin they need to survive.

Americans struggling to afford their medications are hoping Washington’s leaders will step in. In a poll conducted late last year, voters ranked prescription drug prices as the top issue for Congress to address.

But reining in high out-of-pocket drug spending will be impossible if Congress just focuses its efforts on drug makers, one component of the pharmaceutical supply chain. PBMs and health insurers play a far larger role in deciding what patients actually pay for drugs.

Health insurance plans employ PBMs to manage prescription drug plans and negotiate prices with drug makers. It’s a job they do remarkably well. Rebates, discounts, and fees paid to PBMs, health insurers, and the government now total more than $106 billion a year. The average brand name drug now comes with a rebate of more than 30 percent.

But patients rarely see these savings. The reason? Most health plans base an individual’s out-of-pocket drug spending on the medicine’s original list price, not the discounted one. This is different than how health plans price patients’ visits to in-network doctors or hospitals. In those situations, patients benefit from their health plans’ negotiated rates.

This out-of-pocket insurance pricing strategy sometimes means that patients pay more than their insurers for medicines.

Let’s pretend a patient’s healthcare plan requires “co-insurance” of 50 percent. On a drug that retails for $800, that’s $400 in out-of-pocket spending at the pharmacy. Since PBMs are such strong negotiators, that same drug might come with a 65 percent rebate. So the health insurer would only be on the hook for $120 -- most of which it collected from the patient.

Co-pays also illustrate this. Many insurance plans require patients to pay at least $50 for each prescription, regardless of manufacturer discounts. So if a PBM has negotiated a price that’s lower than $50, the patient is often kept in the dark -- and the PBM keeps the money.

Patients deserve to share in the savings secured by PBMs. Prescription drugs cost too much -- and our ire is too often misdirected.